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Rethinking Business Models and the Customer's Value Chain Taking customers more seriously than we have doesn't just mean asking the marketing department to run a few more focus groups or surveys. It means modifying some of our most basic definitions, starting with how we think about business models. In Chapter 2, I observed that businesses exist to create value. Once they achieve this, it might be possible for them to also capture some of this value as revenue by charging for their products and services. In shifting our focus toward customers, we should revisit this definition. When a traveler chooses between two hotel chains, she is selecting within the same basic business model. But when she considers Airbnb as an alternative to a hotel, she implicitly selects between different business models. But when she considers Airbnb as an alternative to a hotel, she implicitly selects between different business models. If customers must choose between renting a suite on Airbnb or at a Four Seasons property, they're actually comparing the value that respective offerings create for them and the value that they must pay for each of these offerings. In addition, the businesses under comparison also often create inefficiencies or waste for their customers while attempting to deliver and charge for value. In this way, businesses sometimes erode customer value. To refocus on the customer, we therefore modify our definition of a business model as follows: A business model from the customer's point of view: "A business model consists of the value a business creates for me, what it charges me in exchange for that value, and what value it erodes for me." For any business in any industry, we can take our updated definition of a business model and layer it on top of the customer's value chain.
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1 Rethinking Business Models and the Customer's Value Chain Taking customers more seriously than we have doesn't just mean asking the marketing department to run a few more focus groups or surveys. 2 It means modifying some of our most basic definitions, starting with how we think about business models. 3 In Chapter 2, I observed that businesses exist to create value. 4 Once they achieve this, it might be possible for them to also capture some of this value as revenue by charging for their products and services. 5 In shifting our focus toward customers, we should revisit this definition. 6 When a traveler chooses between two hotel chains, she is selecting within the same basic business model. 7 But when she considers Airbnb as an alternative to a hotel, she implicitly selects between different business models. 8 But when she considers Airbnb as an alternative to a hotel, she implicitly selects between different business models. 9 If customers must choose between renting a suite on Airbnb or at a Four Seasons property, they're actually comparing the value that respective offerings create for them and the value that they must pay for each of these offerings. 10 In addition, the businesses under comparison also often create inefficiencies or waste for their customers while attempting to deliver and charge for value. 11 In this way, businesses sometimes erode customer value. 12 To refocus on the customer, we therefore modify our definition of a business model as follows: A business model from the customer's point of view: "A business model consists of the value a business creates for me, what it charges me in exchange for that value, and what value it erodes for me." 13 For any business in any industry, we can take our updated definition of a business model and layer it on top of the customer's value chain.